Baidu: Mobile Search Won’t Cure What Ails It

By Ben Levisohn

Baidu’s (BIDU) shares have dropped 7% since it announced earnings last week. The big issue for the company has been its falling profit margins, as the company spends hand over fist to transition from PC to Mobile. The problem: There’s no guarantee that all that investment will translate into revenue.

Bloomberg

T.H. Capital’s Tian X. Hou and Gina Chen note that search is used differently by people on computers versus those on mobile devices. On a PC, the search-engine is often the go-to application for finding what they need online. But Hou and Chen believe search is not only just another app for a mobile user, it’s an “in-case” app. That is, they only use it when they can’t find what they want on their first choice apps.

The implications for Baidu are enormous, Hou and Chen says. They write:

…there could be a discrepancy between mobile phone coverage and the potential scale of revenue due to the fact that the role of search on mobile could be different than on PC. On PC, it is a general internet entry point that people almost use daily while on mobile, apps are the entrance points and search could be just one of many apps, which may not be used often. Therefore, Baidu search may have 100% mobile coverage or activation rate, but users may use it only occasionally. The lack of frequency may limit the potential scale of mobile search revenue.

According to Stifel’s George Askew, Zim Yin and Steve Rubis, Qihoo 360 Technology (QIHU) recognizes the differences. In a report today that summarized their meeting with the company, they write:

Qihoo believes that mobile search represents PC based search applied to a mobile device. The company’s opinion is that the mobile search experience (looking for a restaurant) is considerably different from PC based search (looking for a scientific paper). Qihoo is not focused on improving its mobile search browser (currently one exists with about 10 million users), but rather developing a mobile search app. The company’s goal is to develop and launch a mobile search app focused on resolving issues related specifically to mobile search, for instance: (1) local search, (2) geo-targeting, and (3) character entry.

The downside: Qihoo is only aiming to launch the app during the first quarter of 2013. In the meantime, expect operating margins to fall in 2013, though the first quarter could represent the trough. Qihoo is scheduled to release its earnings on May 20, according to Yahoo!.

Shares of Baidu have dropped 0.8% to $85.19 today, after dropping 14.4% this year through April 30. Qihoo’s stock has fallen o.9% today after gaining 15.5%.

About Emerging Markets Daily

Emerging markets have been synonymous with growth, but the outlook for individual nations is constantly changing. Countries from Brazil and Russia to Turkey face challenges including infrastructure bottlenecks, credit issues and political shifts. The Barrons.com Emerging Markets Daily blog analyzes news, data and research out of emerging markets beyond Asia to help readers navigate the investment landscape.

Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools.